Friday, November 12, 2010

The top of the mountain never looked so high.

I haven't posted in a very long time, we did not have a clear break in divergence on the 60 minute chart, but the daily tells me we did. I am itching to get out of this trade but once the divergence is broken you just don't simply exit out of the trade. First rule of trading and hitch-hiking through the galaxy is NOT TO PANIC. I do not have a "X- criteria is met, LEAVE TRADE". I have a symbol or point of recognition that if divergence is broken it's now time to focus on exiting the trade and forget any pipe-dreams of making money of this trade. I am at this point now.  It only gets more complex when divergence is broken on the longest term chart. This does not mean that I will not make money on this trade still, but my delusion of it DOES, more importantly is that this is the time where you don't sit on a trade and forget about it. Exiting is the right thing to do if you have any doubt but yet, exit smartly if you can.

I cannot count how many time that divergence has broken, yet this is exactly the time the larger trend changes. I'm down 16% currently from this trade using SPXU as of today. I really do not expect to get a gain from this trade but I'm not going to leave the trade because divergence was broken. (See 60-minute chart for trade entry) I am going to hold onto this trade with a very loose grip. Because I trade in charts of 3's (time-frames daily, 60/30 minute "on this trade") they are all showing different stuff. 60 minute tells me that we are still around the last extreme highs yet we are breaking major trend lines. Holding to my rules, based on 60 minute divergence wasn't broken yet the daily tells me otherwise. (I'll get to the daily later). The rule is that we are now in a down turn (who knows how big) that might end up being a small correction or not. The important thing is that we are still going down holding the fib 61-38% retracements  intact in some sort of down trend. We just started this new down turn and that is what I will be watching to exit. (see 30 minute chart below) I made very simple as two what I'm looking at.

I really hope that was clear on that chart... When I enter a trade I will allow for new highs... Now I will not and I'm out. I'm forcing a DOWN policy that MUST happen if not I'm out and you see that now on the 30 minute chart above.

Now the 60 minute chart (this is expanded more than my normal look at it see 2 months on my public charts), you can see that we have reached historic highs yet, divergence is not completely broken and you have many things that make me stay in my short position. (See the 1-X list below) When we got that massive push up on the Nov, 4th, we broke all sorts of stuff, from divergence breaks, trend line breaks, Major MA's, etc etc... I could see the Bulls singing in the street naked pouring honey on each other..... "We won, we won" I hear the bull crowd cheering... It's at these times we have seen exact tops (and bottoms) when things turn around.

1.) CCI (20) & RSI broke it for a second but it shot back below very fast.
2.) MACD trend line that I've been waiting to break for about 4 months finally broke.
3.) Historic highs in almost all occasions from a historic standpoint. (MACD, RSI, CCI 20-160, ADX)
4.) Trend line break, bears on this rally have been scratching their heads at what is an actual trend line break to get this trend to chance. I have held off from this topic for a very long time because typically it is easy to draw a straight line but when a real trend break occurs you get signals with this obvious trend break by "stock price" but what gets people is that when a real trend break happens something else happens major in other indicators or something that has happened on something that is not even on that same time-frame chart (i.e. 30 minute). Nonetheless, let me digress..........   With this new trend break we broke parallel trend lines + MACD trend has broken that has held true for almost 6 months!!

Ok, so let take a stab at the longest of the 3 chart time-frames. The DAILY... In the daily you don't get the divergence that you get on the 60 or 30 minute charts. In this example of my trade you get COMPLETE DIVERGENCE BREAK. This is the key at which all the thought processes of getting out of this trade turned into motion.

Notice the CCI(20) trend  that is not showing divergence yet is moving up. You have an up trend that is almost identical as the uptrend in April 09. More importantly is that you  have a break in the trend of up movement on most indicators including CCI (20), RSI, and STO.
If you take a look at the trend of the indicators you can see an exact trend from CCI and RSI.. and that you have up  trend that is completely broken on this last down run...

I trust that everyone can gather the proper information to get their own conclusions of what is right and wrong with charts technique and with other people.  Happy dreams brothers!